DLF to sell 40% stake in rental arm to GIC

Singapore-based PE beats Blackstone in ~13,000-cr deal

In one of the biggest real estate deals, leading developer DLF has decided to sell 40 per cent of the stake in the company’s rental arm DCCDL for an estimated ~12,500-~13,000 crore to an affiliate of Singapore-based private equity firm GIC.

While around 25 companies were in the fray when talks began to find a prospective buyer in April 2016, the race had eventually narrowed down between GIC and American private equity firm Blackstone.

At an audit committee meeting on Wednesday, DLF closed the decision to get into an exclusivity agreement with GIC. But the deal will take some months to conclude. The money is expected to start flowing in only by the second quarter of financial year 2018.

“Based on the suggestions made by the bankers and legal advisors, it was finally decided that we should go ahead and get into an exclusivity agreement with an affiliate of GIC. It means that now we would only be dealing with them within a stipulated time, during which we would both try and close the definitive documentation,” Ashok Tyagi, DLF’s chief financial officer, told reporters.

Sources said the DLF audit committee zeroed in on GIC as it offered a better deal than Blackstone.

“Bankers went and spoke to around 25 prospective investors which included PE and sovereign funds, who showed interest in the real estate sector. Out of them, four were shortlisted, and talks started with them,’’ said a DLF executive. The company then opened up for due diligence, which took three months to complete.

“Subsequently, we zeroed in on two firms and finally GIC was selected by the audit committee,” he added.

According to sources, the stake sale might end up being valued at around ~13,000 crore. DLF said that the company had entered into an exclusivity agreement and now it would pursue definitive documentation with GIC.

“If we have a satisfactory conclusion, then the deal would go for regulatory approvals,’’ Tyagi said. The talks will focus around valuation among other things. “We expect that the whole process of closing the definitive documentation and going for regulatory approvals would take a few months.”

According to Tyagi, by the time actual funding begins, it would be Q2 of next year. “We just closed the decision to enter into an exclusivity agreement today. We expect that hopefully in two to three months we would close the definitive documentation. Because of confidentiality reasons we cannot disclose the valuation, till the definitive documentation is signed.”

According to industry experts, the deal will give DLF a partner to expand its commercial renting business and help it to restructure its balance sheet and also reduce debt. The company’s net debt is pegged at over ~24,000 crore.

The company is also discussing ways in which the money can come back into the company. “Once the transaction is complete, the debt will come down substantially,” Tyagi said. DLF and GIC could also consider Real Estate Investment Trust (RIETs) in future. He also said if REITs are done, it would not be to reduce debt, but to gather money for future growth.

In late 2009, DLF had announced the merger of its subsidiary DCCDL with promoter firm Caraf Builders & Constructions. DCCDL had then issued CCPS worth ~1,597 crore to promoters.

DLF has about 30 million square feet of commercial area with an annual rent of about ~2,700 crore and out of that, DCCDL holds about 22 million sq ft of commercial space.